When you first begin your new small business, you may wonder about how much you will get paid. You may even wonder about the best way to pay yourself as the owner. As an employee for someone else, you know how much you are making based on your hourly or weekly wage. As a business owner however, it can be a bit more difficult to determine what that take home pay will be.
You will need to first determine the best method for paying yourself. You need to consider a few things for this, including your type of business, whether or not you are incorporated, the business plan that you drew up during your start up process and how long your business has been in operation. There are basically two different ways that you can pay yourself. You can use what is called an owner’s draw or you can set a specific salary for yourself and each of these methods has their own advantages and disadvantages.
If you are planning to draw, you should understand that your draw will not be taxed when you take it out. You will have to file taxes on the draw when you file your tax return. This could be a disadvantage if you end up having to pay a ton in taxes. If you plan to take a salary then that will be taxed when you are paid, which is much better in many cases when it comes to filing your annual income taxes. You will need to determine how much your salary will be and then simply pay yourself from your business account each determined pay period.
Your pay method may also come down to how the IRS views your business. C corporations and S corporations are much more suited for a salary than an owner’s draw. You can learn more about how this works on the IRS website, and it is a good idea to research and figure out what you are planning to do and how you are planning to pay yourself before you actually begin so that you don’t get caught up in changes and IRS penalties and fees down the line.
The good news is that now that you are the proud owner of a new business, you can expect to get paid. You simply have to determine when and how much that pay will be and the best method for taking out your money regularly.